3 Solutions to Improve Your Bad Credit

Susan Doktor
The best credit repair strategy for you will depend on the seriousness of your debt problem and how hands-on you want to be in resolving it.

The best credit repair strategy for you will depend on the seriousness of your debt problem and how hands-on you want to be in resolving it.

damircudic via iStock

Based on brand new survey data, the ABA YLD has issued a landmark report on the current state of law student loan debt. Among the many findings, we learned that more than 75 percent of respondents had over $100,000 in student loan debt and almost 90 percent of respondents said their debt had a major impact on important life decisions. To learn more about the report’s findings and proposed solutions, watch our new webinar replay Understanding and Navigating the Student Debt Crisis. (Replay is free for ABA members. Login required.)

Credit trouble is an equal-opportunity affliction. And as the coronavirus crisis persists, more and more of us are showing symptoms. A doctor might call the two co-morbidities. As a lawyer, you might argue that the pandemic amounts to extenuating circumstances, and the penalty for missing credit payment deadlines should be minimal. Some credit card companies agree. They’re offering qualified cardholders leniency by waiving late fees, temporarily lowering interest rates, setting up payment plans, and otherwise providing financial assistance.

There are lots of reasons people get into credit trouble. Pandemic-related job losses aside, some borrowers simply have bad habits: too many shopping sprees and fancy restaurant meals can lead to carrying large, high-interest credit card balances. Trying to juggle crushing law school debt, mortgages, and car loans is a difficult reality for many lawyers in the early years of their practice. Some of us discover we have a spouse with a spending problem—a little too late. In recent years, identity theft has become one of the chief causes of sinking credit scores. But whatever the source of your credit ills, there are a few different lifeboats that may save you from drowning. 

It’s a Good Time to Refinance

COVID-19 has provoked many economic oddities, but one is incredibly counter-intuitive. You might think the crisis would have engendered a credit crunch. But due to a few steps taken by the Federal Reserve Bank, there’s quite a bit of money available for borrowing—at some historically low rates. If you took out student loans or a mortgage even as recently as a couple of years ago, you might be able to refinance them and lower your monthly payments considerably. Of course, lending institutions reserve their lowest rates for borrowers with high credit scores, so you may want to work on raising your credit score before attempting to refinance.

Do-It-Yourself Credit Triage

The first thing you need to know when attempting to repair your credit is where you stand. Download a free copy of your credit report. Don’t stop reading at your score. That can be downright depressing—and it may discourage you from helping yourself. Instead, go through it with a fine-tooth comb. Review every negative remark on it. Guess what? Some of them may be inaccurate, and you have the legal right to dispute them. You’ve got to do that in writing and in triplicate: write to all three major credit reporting agencies: Experian, TransUnion, and Equifax. It will take some time for them to get back to you, but, by law, they have to respond within 30 days. Another way to approach disputing inaccuracies is to go straight to the creditor that reported them. If you provide sufficient documentation, they can also make the remarks disappear.

It’s difficult to calculate how much of a score boost you’ll see if you’re able to remove negative remarks. In theory, and according to the foremost credit analysis company FICO, your point gain can be equal to the hit your score took when the inaccurate negative remark was added. Considering a single late payment can lower your score by up to 180 points, the time you invest in disputing inaccuracies may offer very high returns.

Debt-to-Income Ratio

Payment history makes up about a third of your credit score. Another critical influencing factor is your debt-to-income ratio. Assuming your income remains steady or increases, every time you pay down a debt—reducing your mortgage balance, for example—your debt-to-income ratio improves, paving the way to a higher score.

Utility Payment History

Another strategy for bumping up your credit score is to have your utility payment history—which isn’t automatically collected by credit reporting agencies—added to your credit report. That is if you’re in the habit of paying them on time. That’s something you can’t do on your own, but a credit repair company can.

The Hands-Off Approach

A great credit repair company can be worth its weight in gold—well, in points at least. These companies take the time-consuming tasks of digging into your credit report and disputing inaccuracies off your hands. Some will negotiate directly with your creditors to try to settle your account for less. Still, others provide identity theft protection and full-on identity theft recovery services as part of their premium plans. The best credit repair strategy for you will depend on the seriousness of your debt problem and how hands-on you want to be in resolving it.

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Susan Doktor

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Susan Doktor is a journalist and business strategist who hails from New York City. She writes on a wide variety of topics, including finance, education, and government affairs. Follow her on Twitter @branddoktor.